Certifications

May 2009

May 31, 2009

One quest for the investor is to discover long-term trends. The idea is to match investment objectives to the time frames of likely developments. As long as one is willing to ignore the day-to-day results, this approach makes sense. Of the many who find this attractive in theory, few are willing to stay the course.

Some months ago, a client asked us to set up a long-term portfolio. He wanted market exposure, and he wanted edge. He did not want active trading. We always have ideas about long-term plays, and we were not surprised by the question. This is not the occasion for our entire answer, but we can state that agriculture was part of the portfolio.

Before turning to this week's featured sector, let us consider what other information can be gleaned from our weekly sector rankings. Each week we reveal our own ratings (with a one-day delay) for a universe of ETF's. We develop the ratings by looking for a combination of sector Trends, Cyclical moves, and a touch of Anticipation. Since we apply this system to a selected universe of ETF's we call it the TCA-ETF model. (The complete current rankings are at the end of the article, along with an explanation of our methodology).

We are not recommending that readers make trades based upon our weekly report. It is intended as a news supplement to your own analysis. Those who are serious about following the method can do better through our formal management programs. We are just trying to be helpful with the free information.

The conclusions from this week's list are similar to those we reached last week. The overall market is not strong. The leading sectors all benefit from a weak dollar, with emphasis on energy and foreign stocks.

Focus on Food

If there is a single known element in the worldwide demand picture, it would be food. World population is growing. Many developing countries may be expected to build stronger economies. Companies that provide agricultural products and services benefit from these secular trends.

We invest in agriculture via the Van Eck Global Market Vectors Agribusiness ETF (MOO). The fund tracks the DAXglobal(SM) Agribusiness Index (DXAG). It has about 50% US exposure. Chemicals (fertilizers, etc.) are the top holdings, constituting 44% of the fund, but agricultural operations and equipment are also important. The top five companies make up about 40% of the fund and the top ten constitute 2/3. The P/E ratio is about 12.5.

An attractive feature of MOO is the potential for independence from the general market. While strong markets can take all stocks up or down, during a period of consolidation there is a better opportunity for sectors that are not strictly tied to other market themes.

For those who like to compare their own chart reading with the model, here it is.

Other Comments

We regularly seek out expert opinion on the top choices from the model. David Fry sees MOO as bumping up against resistance in a weekly chart he shows here.

We also like this article at ETF Grind. It shows the potential for some sectors to "decouple" during a recession in developed countries.

Weekly TCA-ETF Rankings

Only 21 of our
57 sectors are in the
"buy" range, the strength is dropping dramatically for most. The index
ETF's are all in the penalty box. It is a weak overall
picture, but not yet bearish.

Despite our "neutral" posture, the
daily
portfolio had a great weak, gaining over four percent and beating our benchmark S&P 500 by more than 50 bps. We were fully invested in energy and other weak dollar plays, as well as MOO.

Our weekly ETF Update is designed to assist both investors and
traders interested in ETF's and Sector Rotation. Before turning to the
current rankings, let us undertake a review for readers new to this
series.

Our Method. In this past article,
we described our basic methodology and why we believe the rankings are
useful for fundamental traders and technical traders alike. While we
urge readers to check out the entire article, the key point is that
ETF's pose challenges and opportunities different from investment in
individual stocks. The fundamentals may be more difficult to assess.
Even with a good grasp on fundamental trends, there is a lot of
technically-based trading in ETF's. This means that those trading with a fundamental approach (and we do this as well) want to monitor the "hot money" moves. Here is an article on that point.

The system synopsis.
We look at Trending sectors, Cyclical Sectors, and build in an element
of Anticipation for both entry and exit -- thus the name of the model,
TCA-ETF. While we do not reveal the exact methodology for spotting
trends and cycles, the system is not a "black box." The basic elements
are used by many, and widely reported. We even discuss the need for human analysis as opposed to black box trading.

We report the rankings
each week, now on the weekend with a one-day delay, using the Thursday
output from the model. We monitor and trade this daily, and offer a
free report (request via the email address on the top left of the site)
for those interested in our weekly trading program.

May 29, 2009

Every Thursday we see the same discussion of the weekly jobless claims reports. It is not helpful, even though this is a good real-time indicator.

Some commentators note that initial claims, usually measured by the four-week moving average, have stabilized and even show some decline. Economist Robert Gordon, a long-time member of the NBER dating committee, believes that this indicates an imminent end to the recession. Look here for a nice summary by the Good News Economist, and here for the full Gordon article. Check out the convincing charts and tables. Gordon writes as follows:

If we refine the NBER weekly trough date to be the third week in
the NBER trough month, then in four of the past five recessions the new
claims peak leads the NBER weekly trough by a range of only four to six
weeks, and in the fifth recession the new claims peak lags
the NBER weekly trough by two weeks. Since new claims have recently
reached a peak in the week ending 4 April 2009, it is tempting to
conclude that the monthly trough of the US recession could come as
early as the middle of May 2009 – a date earlier than most analysts
appear to expect.

Meanwhile, many observers highlight the scary chart showing continuing claims. As we noted last week, this indicator is helpful in showing individual pain from the recession, but not for predictive purposes. Continuing claims are not a consistent series because of changes in the duration of unemployment benefits. Those presenting this chart have an obligation to address this issue.

Instead, most point to it as evidence that the recession will be prolonged. It is not good evidence for this argument.

An Exercise

Continuing claims are nearly 6.8 million, up 110,000 from last week. It is a deeply disturbing fact, representing plenty of distress.

Now try this. Take the initial claims level of about 620,000. Multiply this by the number of weeks of benefits. In normal times this is 26 weeks, but it is now as long as 72 weeks in some states. (It is still not long enough for some). Let us take 52 weeks as a conservative number for many states. Now multiply.

This shows that more than 30 million people lose jobs in a year. It also shows that 80% find new jobs.

This conclusion is supported by various reports from the BLS. The most authoritative sources use the business dynamics series, citing data from state unemployment records. In data released last week, but ignored by everyone, the BLS reported on the most recent available data, from the third quarter of 2008.

The number of job gains was 6.8 million. That is over 100,000 jobs for every business day.

The problem is that job losses were 7.8 million, a net loss of a million jobs in the quarter. The fourth quarter data will be much worse.

Getting an Accurate Picture of Labor Dynamics

There are several important conclusions.

Looking at changes of 100K or so in continuing claims is misleading. This is statistical noise compared to the overall impacts.

The critics of the BLS on job creation measurement (including the many birth/death model critics) are completely wrong. There are many jobs being created. The problem is that job creation is not keeping up with job losses.

The extent of the impact is better represented by the 30 million or so people who have lost jobs in a year, and also their colleagues who feel threatened. This is a big damper on consumption.

The Obama Administration efforts to "count" job gains from stimulus do not capture the story.

Anyone who looks at the actual data gets a more accurate picture. There is a sea change of job losses and gains. It helps to understand why the initial claims series is so important.

To our continuing surprise, none of the mainstream media sources have reported this story. It is almost as if they are following the bloggers rather than doing their own research.

May 27, 2009

This is a crucial time for individual investors. We have talked with many of them over the last few weeks. Few have a clear plan of action. There are three distinct groups.

Some have abandoned equity investing. Cash on the sidelines has never been higher.

Others are interested, but frightened off by the incessant negative commentary. Jim Cramer has joined the party on this one, endorsing a theme we have pursued for many months.

A final group is discouraged that they did not catch the March bottom. They are worried about being too late.

Meanwhile, there is little help on the Internet. Sure, there are many sources, but they are all seeking higher hit counts and ad revenues. One might as well get investment advice from Dancing with the Stars!

Advice for Investors

With this problem in mind, we are going to focus a few more articles on the individual investor problem. Let us start with the biggest current issue: Politics.

It is great to live in a free country. We can all have political opinions and enjoy freedom of expression.

Here at "A Dash" we recommend political agnosticism. In the Bush era, many thought that we were of staunch GOP upbringing (perhaps a good guess?). In recent days, others suggest that we are Obama apologists. OK.

Our actual philosophy is that we want to earn investment gains for clients regardless of the political circumstances. We do this by analyzing policies and determining likely outcomes, just as we did in the old days. It is a lost art.

Most people have a political agenda. They get on TV or get a writing gig and confuse politics with analysis. This is no way to make money.

Starter Question

Today's big story centered on 100 days of stimulus. We plan some detailed analysis, but let us consider the first reactions. Readers have a clear choice:

Are you focused on politics or investments?

Some critics said that the stimulus plan was poorly designed, too expensive and mis-directed. Others said that it was just getting started.

What are your feelings? Are you expressing heart-felt political opinions or are you trying to make money?

May 26, 2009

Here at "A Dash" we analyze many different investment approaches. In our financial management we follow two basic methods:

A fundamental value analysis. We are normally fully invested, but can back off a bit in certain circumstances. We have a method for finding edge, based upon our own set of key indicators, and call it our Great Stocks program. For shorthand, we call it the "Jeff model."

A sophisticated computer model that analyzes a universe of ETF's looking for emerging Trends, Cyclical behavior, and including a touch of Anticipation. We call this the TCA-ETF approach, and call it the "Vince model" after its creator. (The complete current rankings are at the end of the article, along with an explanation of our methodology).

The Vince model has had a nice run, but Jeff is still ahead on the year. It is a friendly competition.

How to Learn from Models

When we do our analysis on the fundamentals, we always pay attention to the TCA-ETF results. You can do the same. The way to do this is to make your own decisions, but then to check the ratings to see what the "expert system" analysis tells you. This is mostly technical, an indication of what is likely to work -- the market verdict, so to speak.

Let us take a look at this week's ratings for an important lesson in using this information.

Hidden Correlations

This week's ratings, listed in full at the end of the article, include energy holdings, alternative energy, and foreign country ETF's. At first glance, it seems like this is a diverse portfolio.

In fact, there is a common theme. During the last week there was a major concern about the rating for sovereign debt and also the value of the dollar. If one thinks about this, the sectors are all keyed to the dollar. Commodities are dollar-denominated, and foreign ETF's link both to the dollar and commodities.

Could we be looking at inflation sooner than expected?
If so, that would have important implications for Federal Reserve
policy, interest rates, commodities, and the prospects for sustained
economic recovery.

There was also commentary from mainstream media, but without all of the implications.

Our Take

When we see these hidden correlations we become more cautious and reach for some diversification. If we have sectors that are rated a bit lower, but not playing for a weak dollar, we include those in our portfolio. It is important not to follow one's model in a blind fashion when there are reasonable alternatives.

Weekly TCA-ETF Rankings

While 33 of our
57 sectors are in the
"buy" range, the strength is dropping dramatically for most. The index ETF's are weak, with the Q's in the penalty box. It is a weak overall picture.

The
daily
portfolio had a great weak, gaining almost 6% versus 0.5% for the S&P 500.

Based upon the model signals, we shifted our long-standing official bullish
position to neutral in the Ticker Sense Blogger Sentiment poll. Sorry for the delay in our update, normally done on the weekend. (Even the old prof takes some time off, on occasion). Those subscribing to the weekly report get the information in advance via email.

Note for New Readers

Our weekly ETF Update is designed to assist both investors and
traders interested in ETF's and Sector Rotation. Before turning to the
current rankings, let us undertake a review for readers new to this
series.

Our Method. In this past article,
we described our basic methodology and why we believe the rankings are
useful for fundamental traders and technical traders alike. While we
urge readers to check out the entire article, the key point is that
ETF's pose challenges and opportunities different from investment in
individual stocks. The fundamentals may be more difficult to assess.
Even with a good grasp on fundamental trends, there is a lot of
technically-based trading in ETF's. This means that those trading with a fundamental approach (and we do this as well) want to monitor the "hot money" moves. Here is an article on that point.

The system synopsis.
We look at Trending sectors, Cyclical Sectors, and build in an element
of Anticipation for both entry and exit -- thus the name of the model,
TCA-ETF. While we do not reveal the exact methodology for spotting
trends and cycles, the system is not a "black box." The basic elements
are used by many, and widely reported. We even discuss the need for human analysis as opposed to black box trading.

We report the rankings
each week, now on the weekend with a one-day delay, using the Thursday
output from the model. We monitor and trade this daily, and offer a
free report (request via the email address on the top left of the site)
for those interested in our weekly trading program.

It is easy to add panic to the fire when you get an actual downgrade as
we saw today from S&P on the U.K. Technically, that is just a bias
downgrade, but that is still enough. The notion that someone with the
clout of Bill Gross bringing this risk to light is troubling for
investors who have been preparing for the next wave of the economy and
credit to be better rather than worse.

The Irony

There is an exquisite irony in worrying about the S&P downgrade. This is a company vilified by nearly everyone for the failure to recognize the subprime risk, lamely giving AAA ratings to assets now viewed as "toxic waste."

All of a sudden, we are viewing these guys as the brilliant analysts who know the potential for nations to pay back debt. Really?

There is a serious public policy issue about government "bailouts" and the debt required. It is a matter of discussion among many serious economists. We do not pretend to offer an answer--not yet. At "A Dash" we are (informed) consumers of such information.

While we are still evaluating the arguments, we can state a preliminary conclusion: The S&P ratings will not be our first choice.

May 20, 2009

Kate Kelly's book, Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street, now on our recommended reading list, is a great source of information and fun to read. It is well-sourced, authoritative, and always interesting.

Does it provide, through a look at Bear, the answers to our financial crisis? We think not, but that is part of the fun. The reader can collect information -- raw data -- with real confidence. There will be many accounts of the financial crisis. Anyone seeking a complete understanding should consult many sources.

The Approach

Street Fighters tells an engaging tale focused upon how a mighty firm was reduced to rubble in three days. You know the ending before you start reading, but it is no less engaging. The author has a nice sense of the characters and has done extensive research into backgrounds. We not only learn about the major players, we learn what everyone else thought about them.

Such an approach is open to challenge. Kelly provides footnotes for sources, and acknowledges disagreement. It is convincing support for her narrative.

The Result

The reader is treated to a view from several perspectives. It is an insider's take on the politics within an investment bank. There is genuine conflict over risk and which products to feature. Even the most jaded reader may have some sympathy for a wealthy guy who spent a lifetime building up his company and his position, only to lose it all in a few days. This is "inside baseball" at its best.

The story is dramatic and well-told.

Assorted Insights

The reader has raw data to draw conclusions on several interesting points. Here are some that stood out for us. Yours might be different. Please consider the following:

Significance of CNBC. David Faber had a story about firms not trading with Bear. It was big news, but it was later denied by those in question. The damage was already done. The issue is how much information one needs to go with a story like this, when the story itself can affect the outcome. Should Faber have verified more completely before going with this story? Would it have made a difference?

Significance of Kelly and the WSJ. Many readers will already be familiar with the three-part series in the Wall Street Journal. In the book, Kelly asserts that the series itself -- criticizing Cayne's leadership -- had an impact within the firm.

Hank Paulson's Role. Paulson is portrayed as dictating a punishingly low stock price for Bear. Historians will combine this information with additional information, includeing his reversal on the use of TARP funds, the decision to force TARP on all of the major banks, and other similar decisions. From our perspective as public policy experts, this is an extraordinary and arbitrary use of powers. It is on a scale that is without precedent for a Treasury Secretary.

The Fed Role. The decision of the Fed to expand lending to include investment banks, only two days after the Bear failure, was extremely arbitrary with respect to timing. We should all be concerned when public officials make decisions about which firms (and which investors) live or die, and do so without clear rationale. Bear was allowed to die while others were saved.

Conclusions

Kelly's conclusion is that Ace Greenberg built a firm on some principles and Jimmy Cayne violated those and lost it all. We are not convinced.

We can now see what happened to many other firms. It would not have mattered if Bear's leverage and risk had been a little less. Kelly is probably right in suggesting that Bear was an unloved firm on the Street, and therefore first to be challenged.

It was beyond her scope to consider other causes, although there is a paragraph or two on the trading in Bear stock. This was something we watched daily on our trading screen. Those betting against the firm could trade in the thin Credit Default Swaps market (CDS), buy puts (where premiums exploded in issues that were far out of the money), short the stock, pull your hedge fund accounts, and spread rumors.

These events were all taking place. The sequence of causation will never be determined. What we do know is that any business depending upon confidence and credit can be destroyed in three days. Those aiding the destruction can make millions as it happens. If that is a verdict on a business model, the entire banking industry is in question.

Final Take

The book is fun to read and has plenty of raw data with authoritative sources. You should read it, and combine what you learn with other information. The story of the 2008 crisis is complicated. We look forward to reviewing other books on the subject.

May 19, 2009

Here at "A Dash" we have a continuing commitment to finding important economic indicators. This means throwing out misleading information and finding indicators that help investors. We are going to examine some "broken measures." This analysis will not be biased. We are going to throw out some indicators that skew bearish, and some that skew bullish.

Continuing Claims -- A Dubious Indicator

There is a new indicator on the economic front -- continuing jobless claims. Pundits of a bearish persuasion are rejecting the recent stabilization (even improvement?) in initial claims. They prefer to cite the hockey stick rise in continuing claims. Here is an example, but we do not mean to pick on any single source. You can find the chart anywhere on the Bearish Blogging Network, but we are picking it up from a more balanced source, Bill Luby. Please read his discussion to get the context. We just want to show the excellent chart.

The chart is alarming to all who see it -- another "worst in history" presentation. Should we believe it?

The Problem

The key point is that this is not an apples-to-apples comparison. Jobless benefits have been extended twice (at least for most states), so recent data are not strictly comparable with past periods.

There are some who believe that extending jobless benefits reduces the incentive to look for work. While we do not endorse that viewpoint, there is an obvious "break" in the time series. We cannot compare periods where jobless benefits have different time periods and expect to get meaningful results.

BLS Data

The BLS provides a different approach, available in the table below. Anyone who looks at the actual data will see the facts, as follows:

The number of people experiencing 27 or more weeks of unemployment has increased dramatically in the past year, from 1.4 million to 3.7 million. It is a bad employment situation, as we have frequently reported.

The mean duration of unemployment has increased from 18.3 weeks to 21.4 weeks, a serious increase.

The median duration of unemployment has increased from 11.0 weeks to 12.5 weeks.

This is a very negative picture, but not as bad as the popular chart suggests.

We remain very concerned about job losses, the employment rate, the rate of marginally attached workers, and other indicators.

Having said this, the four-week average of initial claims is an important indicator in our employment models. It has stabilized in recent weeks. Most observers do not pay any attention to actual data about new job creation, which is running at a rate of over two million per month or so.

Briefly put, we all know the employment picture is bad. It is important to look to indicators that are comparable across time periods. There is new employment. Some people are finding jobs, although the rate is still poor.

The continuing claims chart is not helpful in this regard. It should not get much attention.

May 17, 2009

Last week's market action has some important and interesting messages. We see rapid sector rotation, with a dramatic fall in some of last week's leaders and soaring ratings for new choices. The overall market rating is mixed -- still bullish, but lacking the strength of recent weeks.

We look beneath the overall market averages to find sector strength in our universe of 57 ETF's. The strength may be momentum-based, reflecting recent Trends, or it can represent part of a Cyclical pattern in the sector. The process adds a touch of Anticipation, so we call it the TCA-ETF system. (The complete current rankings are at the end of the article, along with an explanation of our methodology).

Falling Sectors

Home Construction (ITB) plummeted from #4 last week to #51 and a place in our "penalty box." Networking fell from #6 to #44, and also went to the penalty box. These are extremely rapid one-week moves.

Market Averages

While the model retains bullish ratings on the S&P 500 and the Dow, the Q's are in the penalty box, as is the inverse ETF, the PSQ. This is a neutral rating on the Nasdaq.

Spotlight on the Gold Miners

The ratings star of the week was the Market Vectors Gold Miners ETF (GDX), shooting from #46 to #5 in our ratings. We last featured GDX in November. That article pointed out the low concentration (37% in the top five holdings), the heavy Canadian exposure (67%), and the low correlation with the S&P 500.

Part of our analysis was the advantage of taking gold stocks rather than the metal. We are not going to repeat the entire argument, so take a look.

Here is the chart.

Fundamental Analysis on Gold

There are several distinct viewpoints on the current attractions of gold stocks.

One camp predicts that current government policies will inevitably lead to inflation. Tom Lydon summarizes those views and some alternative investments.

Maoxian points out that the astute hedge fund manager, John Paulson, has been accumulating a gold position, including GDX.

James Kostohryz takes a different viewpoint, although he still sees the potential for short-term gains. He writes as follows:

...gold is moving from being traded as “safe haven” play and is gaining a
bit of traction as a “reflation play.” Notwithstanding, it is important
to note that even within the context of the broader reflation play,
gold and gold stocks have badly underperformed other commodities and
commodity stocks.

I do not think gold will rally very far
based on concerns about inflation. The reason is simple: The arguments
offered by gold bugs for hyperinflation or high inflation, are
empirically and even theoretically unsound. There is minimal risk of
significant inflation occurring any time within an investment horizon
that can be considered to be highly relevant to the market (1-2 years).
Thus, as the data roll in, and this reality sinks in, gold will lose
its appeal as a supposed inflation hedge.

It is always interesting to see divergent viewpoints and explanations. For the moment, we are once again buyers of gold miners via GDX.

Weekly TCA-ETF Rankings

45 of
our
57 sectors are in the
"buy" range. While a few sectors have extremely strong ratings, the
overall picture is much weaker than it has been in recent weeks.

The
daily portfolio lost about 9 percent on the week, with the S&P
500 down about 5 percent. This reflects the rapid nature of the rotation, and the fact that the system does not call "tops." We do exit when a sector moves into the "penalty box."

We traded out of two positions on Friday, the day after the regular ratings update. There is a reason for publishing this as we do. The ETF Update is designed as news information -- something to augment the trading ideas of our readers. For accounts that we manage, we run the model at least twice every day. Even for those in the weekly programs we may adjust at mid-week. Those who really like the concept should call us to discuss our program. We are not suggesting that people should read our weekly ratings and make their own trades, strictly on this basis.

Our weekly ETF Update is designed to assist both investors and
traders interested in ETF's and Sector Rotation. Before turning to the
current rankings, let us undertake a review for readers new to this
series.

Our Method. In this past article,
we described our basic methodology and why we believe the rankings are
useful for fundamental traders and technical traders alike. While we
urge readers to check out the entire article, the key point is that
ETF's pose challenges and opportunities different from investment in
individual stocks. The fundamentals may be more difficult to assess.
Even with a good grasp on fundamental trends, there is a lot of
technically-based trading in ETF's. This means that those trading with a fundamental approach (and we do this as well) want to monitor the "hot money" moves. Here is an article on that point.

The system synopsis.
We look at Trending sectors, Cyclical Sectors, and build in an element
of Anticipation for both entry and exit -- thus the name of the model,
TCA-ETF. While we do not reveal the exact methodology for spotting
trends and cycles, the system is not a "black box." The basic elements
are used by many, and widely reported. We even discuss the need for human analysis as opposed to black box trading.

We report the rankings
each week, now on the weekend with a one-day delay, using the Thursday
output from the model. We monitor and trade this daily, and offer a
free report (request via the email address on the top left of the site)
for those interested in our weekly trading program.

May 16, 2009

Several observers have noted a pattern of revisions in government data -- the story always seems to get worse. This has been particularly pronounced over the last few months.

Mike Panzner, writing at The Big Picture (one of our featured sites), does a nice job of explaining the significance of the issue. He writes as follows:

Many market-watchers claim that U.S. economic statistics are increasingly being revised downward in subsequent periods, suggesting that the figures initially being reported by Washington are “puffed up,” so to speak, most likely for political purposes.

Panzner then does an initial check by looking at four different data series, summarized in this chart.

He draws a careful conclusion. It summarizes both what we can see from the data and what we cannot. Panzner writes:

Based on a quick read of a graph of the data (see below), it does seem as though the pattern of negative revisions has been trending higher lately, especially during the past year or so, suggesting that the cynics may be on to something.

That said, I am not a statistician, and the results may be nothing more than “noise.

This is an excellent introduction to a topic of interest.

In his influential weekly market letter John Mauldin generates new hypotheses. He cites the Panzner work and also notices some other features from the chart. His key insight pertains to the period of 2003-04, where initial estimates had upward revisions. The Mauldin conclusion is that while there is no conspiracy, the government methods are poor at turning points and the birth/death methodology is "a wild-eyed guess based on past trends, which by definition we know will change at economic turning points."

Preliminary Analysis

First, this is an interesting and important topic. There are some very naive people who believe that an entire government bureaucracy switches allegiance the day after an election. There is a cottage industry aimed at convincing people to ignore data. One of our missions at "A Dash" is to show that this is wrong.

Second, the evidence of the negative revisions is clear. It is worth investigating, and we have been doing so for several weeks.

Third, we do not agree with the "turning point" argument. We hope to convince John Mauldin of this in the weeks ahead. The BLS has several reports showing that the job creation modeling has done well with economic changes. He is correct in his observations about the data, but we believe he is wrong about the cause.

So how does one explain the Mauldin observation about 2003-o4?

Preliminary Conclusions

In general, we like to have complete results before writing. We are going to make an exception in this case to foster cooperation with others who are looking into the same topic. We all seek the same objective.

We have been analyzing the payroll employment data, so that is the specific subject. The results might apply to other series, but we do not yet know.

Our key finding is the following: The negative revisions have little effect on the not seasonally adjusted data. The revisions mostly relate to seasonally adjusted reports, by far the more publicized and more important.

We'll provide some data to support this in the near future. We have a much more specific hypothesis for our research. More later.

Significance

The most important implication of this result is, of course, that there is no conspiracy. Anyone who understands government already knew that, but this is some additional supporting data. If a month is revised downward because of a changed seasonal adjustment, some other month has to be revised upward. For any twelve-month period, the unadjusted job changes and the seasonally adjusted job changes are (approximately) equal.

The second question relates to understanding seasonal adjustments. The BLS uses the Census Bureau ARIMA X12 method, an approach with many decades of development and support. We are doing some tests with this model, available free to any researcher, and expect to report more soon. We wonder how anyone can have a strong opinion without some personal experience with seasonal adjustments via this model.

And finally, we wonder if the revisions will turn upward at some point.

This is a very difficult subject, and we are trying to cooperate with others who are taking a look. It would be a great topic for thesis research. As John Maudlin wisely suggests, it might not have much immediate payoff for those of us managing investments.

May 12, 2009

Here at "A Dash" we were early supporters of Seeking Alpha. We have had a constructive relationship with the site and their leaders.

We congratulate them on their success, and their growing readership, becoming a top-ranked site in the ratings.

The Seeking Alpha Difference

There are some interesting metrics that one can derive from Seeking Alpha. These stem from their approach, embracing the blogosphere and highlighting the news flow.

This is dramatically different from mainstream media sources, where writers choose their subjects and editors review the overall balance.

Please understand that this is not a criticism of the Seeking Alpha model. We merely point out the difference. The articles appearing there reflect blogger opinion and news flow, and it is done very accurately.

Why This is Helpful

The objective stance of Seeking Alpha helps us to gauge what people are thinking. There are two excellent metrics.

Most Popular Articles

The ranking of most popular articles shows what people are actually reading. Here is the current list (skipping the excellent daily briefings):

Once again, we repeat that these stories are not a discretionary choice of the Seeking Alpha editors, who do a fine job. It is an accurate reflection of reader sentiment and news flow. That is what makes it so interesting.

While we have picked the leading articles from today, it is quite typical of the pattern throughout the recent rally. It shows bloggers and readers, all fighting the rally. It is a strong example of the wall of worry that we described a month ago.

If we looked to the most popular authors and commenters, we would see a similar pattern. It is an accurate reflection of the skepticism of those active in online writing and commentary. This might be a better sentiment indicator than Investors Intelligence or other similar choices.

Many people are wondering whether it is too late to buy stocks. This is one indicator.

We think, like traditional sentiment indicators, it is a contrarian signal. If and when the top stories, authors, and articles are all bullish -- well, that would be the time to think about taking profits from the recent rally.